ITC extends rally, hits new high; surges 25% so far in calendar year 2023

Thus far in calendar year 2023, ITC surpassed Infosys, HDFC, SBI, Bharti Airtel, Adani Enterprises and Life Insurance Corporation of India (LIC) in market-cap ranking.

Shares of ITC continued their northward movement, hitting a new high at Rs 416.50, up 1 per cent on the BSE in Thursday’s intra-day trade on expectations of strong earnings.

Thus far in the calendar year 2023 (CY23), the stock of fast moving consumer goods (FMCG) to hotel major has rallied 25 per cent. In comparison, the S&P BSE Sensex was down 1.2 per cent thus far in CY23.

ITC now is the sixth most-valued listed company in terms of market capitalisation (market cap). This calendar year so far, ITC has climbed 7 positions, after a sharp rally in stock price of the company. ITC surpassed Infosys, Housing Development Finance Corporation (HDFC), State Bank of India (SBI), Bharti Airtel, Adani Enterprises and Life Insurance Corporation of India (LIC) in market-cap ranking.

ITC is one of the largest diversified players in India, present in businesses such as cigarettes, fast moving consumer goods (FMCG), hotels, and paper.

ITC has delivered resilient performance in the past few quarters, despite an uncertain demand environment and sustained inflationary pressures on margins. The resilient performance was driven by good recovery in its core cigarette business (in the post Covid era), steady double-digit growth in the non-cigarette FMCG business, and accelerated growth in the hotel, and paperboard, paper and packaging (PPP) business.

The management said the FMCG businesses during the December quarter (Q3FY23) witnessed strong growth across channels and markets (both urban and rural) driven by ramp-up in outlet coverage, enhanced penetration and superior last mile execution.

As seen in the past, stability in taxes on cigarettes, backed by deterrent actions by enforcement agencies, continues to enable volume recovery for the legal cigarette industry from illicit trade leading to higher demand for Indian tobaccos and bolstering revenue to the exchequer from the tobacco sector, the management said.

Meanwhile, ITC is expected to maintain its volume growth momentum in the cigarette business, given no price hikes in the near term and government curbing illicit cigarette sales. Strong growth in the non-cigarette FMCG business, stellar recovery in the hotel business, and sustained growth in the PPP business will drive double-digit revenue and PAT growth over the next two years, Sharekhan said.

Strong earnings visibility with improving growth prospects of the core cigarette business and margin expansion in the non-cigarette FMCG business, along with a high cash-generation ability and strong dividend payout, will consistently improve valuations in the coming years, the brokerage firm said. It maintains Buy recommendation on the stock with an unchanged price target of Rs 450.

According to analysts at ICICI Securities, cigarette volumes would continue to grow at faster pace (10-13 per cent) led by stable taxation in last five years & curb on illicit cigarettes. Further, ITC (FMCG) business is also expected to see strong growth of 19.1 per cent led by higher growth in foods, discretionary & stationary segment, the brokerage firm said in Q4FY23 result preview.